USD Strengthens on Jobs Report, Euro Eyes Upward Correction

The US dollar gained against the euro after the August jobs report showed a robust labor market, even though there were some signs of deterioration. Eurozone bond yields also dropped, indicating increased investor confidence in the Eurozone's economy. Private surveys revealed that Eurozone manufacturing, while still facing challenges, showed signs of improvement. In contrast, Germany remained a negative outlier among major European economies, with its manufacturing sector in a downturn.

France's manufacturing sector contracted for the seventh consecutive month, exacerbating concerns about the Eurozone's economic health. Italy faced economic setbacks, with its GDP shrinking in the second quarter and its manufacturing sector contracting for the fifth consecutive month. Despite these challenges, Italy's government was committed to maintaining a downward trend in its deficit, leaving little room for stimulus.

European Central Bank (ECB) policymakers discussed their options at an upcoming interest rate meeting, acknowledging that interest rates were near their peak and underlying inflation had likely peaked. The ECB's credibility appeared to be under scrutiny as market expectations for inflation remained above the central bank's 2% target.

On the other hand, Fed funds futures traders predicted a high likelihood of the Federal Reserve keeping rates unchanged at its upcoming meeting. Meanwhile, US manufacturing continued to contract but at a slower pace, suggesting a potential stabilization in the sector.

The August jobs report reinforced expectations that the Federal Reserve would maintain its current interest rate stance. Despite some moderation in wage growth and a rising unemployment rate, certain service sectors still struggled to find workers. Wage growth slowed, with average hourly earnings seeing a smaller increase. However, wages continued to rise above the Fed's 2% target, and some economists expressed concerns about potential upward wage pressure from recent union contracts. While other economic data suggested a 'soft landing' for the US economy.

Looking ahead, economic data this week will not be expected to significantly alter this view. The Institute for Supply Management (ISM) will be set to release service sector activity data, which is expected to show a slight softening. Additionally, the Fed will publish its Beige Book, providing insights into economic activity across the US.

Investors will also have the opportunity to hear from several Fed speakers this week. The major event on the US economic calendar will be the publication of the August jobs report, with economists projecting a moderate increase in nonfarm payrolls and a slight moderation in average hourly earnings growth.

The Fed's focus will remain on curbing labor demand and mitigating wage growth to combat inflation. While expectations for a Fed policy shift are growing, uncertainty surrounds the central bank's actions before its upcoming meeting. Hence, there is an expectation that the euro will probably undergo an upward correction following its recent pronounced decline, while maintaining a relatively stable position, showing a downward trend, or being slightly weaker than the US dollar in this timeframe.

Data for Technical Analysis (5H) CFD EUR/USD

Resistance : 1.0780, 1.0783, 1.0787

Support : 1.0772, 1.0769, 1.0765                    

5H Outlook

Source: Investing.com    

Buy/Long 1 If the support at the price range 1.0762 - 1.0772 is touched, but the support at 1.0772 cannot be broken, the TP may be set around 1.0780 and the SL around 1.0757, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0780 - 1.0790, TP may be set around 1.0800 and SL around 1.0767, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0780 - 1.0790 is touched, but the resistance at 1.0780 cannot be broken, the TP may be set around 1.0769 and the SL around 1.0795, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0762 - 1.0772, TP may be set around 1.0755 and SL around 1.0785, or up to the risk appetite.       

Pivot Points Sep 04, 2023 02:35AM GMT

Sources: Investing 1, Investing 2